Posco forecasts steel prices to continue rising

2005-01-14

Posco, the world’s fifth-largest steelmaker, said Thursday tight supplies of raw materials will continue to drive up steel prices, as it raised sales target by 16 per cent for the year ahead. The South Korean steelmaker forecast sales in 2005 to rise to Won23,010bn ($22bn). It plans to increase investment in the same period by almost 80 per cent to Won4,810bn. It aims to increase operating profit by 15-20 per cent this year from last year’s Won5,054bn, by cutting costs and increasing the portion of high-end steel products such as auto steel sheet. “Some say that steel prices will fall in the second half, but I think the possibility is very low,” said Chairman Lee Ku-taek told investors on Thursday. “We will have to raise steel prices this year, given rising raw material costs and tight steel supply.” Mr Lee estimated that the company’s raw material costs would rise by about Won1,000bn this year. Posco recently agreed to pay more than twice as much for high quality coal from Australian suppliers from April. It is also in negotiations with iron ore suppliers over price increases. The company plans to invest Won16,000bn over the next five years to increase its production capacity, of which 25 per cent will be spent on overseas projects. It recently bought stakes in coal mines in Australia and Canada , and is in talks to build steel mills in India and Brazil. “Despite rising raw material prices, raising our business target reflects our determination to continue the march to renew our record in 2005,” the company said. The company, which sells three quarters of its output at home, posted a record net profit of Won3,826bn in 2004 on sales of Won19,792bn last year, when it raised domestic steel prices three times and the stronger won helped offset rising raw material prices. But analysts said Posco’s earnings growth were likely to slow this year, as China’s increasing production capacity may turn the country into a net steel exporter from a net importer, putting pressure on steel prices. “Its performance will not deteriorate, but it is hard to expect last year’s growth momentum to continue this year,” said Yi Seung-gook, an analyst at BNP Paribas Peregrine. “Steel prices are likely to peak in the second quarter and then global demand is expected to fall.”